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tv   Nightly Business Report  PBS  June 23, 2011 1:00am-1:30am PDT

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>> susie: the federal reserve says the economy is growing more slowly than expected, but chairman bernanke believes this too shall pass. >> i do personally believe that the slowdown is at least partly temporary, and that... that... we will see greater growth going forward... >> tom: but the central bank offers no new plan to boost growth or jobs. it's "nightly business report" for wednesday, june 22. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
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this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone. the men and women of the federal reserve said today the economy has worsened. wrapping up a two-day policy meeting today, they said the economic recovery is progressing "somewhat more slowly" than expected, the job market is "weaker than expected," housing continues to be "depressed" and inflation has "picked up." and tom, despite that gloomy picture, the fed still says it will end its program to buy government bonds on june 30 as planned. >> tom: susie, fed members also voted unanimously to keep a key interest rate near 0%, hoping to
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boost the economy. the central bank's own economic forecast was revised down. it now expects the u.s. economy to grow 2.8% this year. as for the labor market, the fed predicts the unemployment rate will get down to 8.8% this year. >> susie: fed chairman ben bernanke talked more about his outlook and policies to fix the economy at a news conference this afternoon. our washington bureau chief darren gersh was there and has this report. >> reporter: with the economy performing worse than he and his colleagues expected, the key question for chairman ben bernanke was whether this slowdown is temporary or not. the chairman told reporters he doesn't have a precise read on why the economy has lost momentum over the last few months. >> one way to think about it is that maybe some of the head winds that have been concerning us, like weakness in the financial sector, problems in
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the housing sector, balance sheet and deleveraging issues-- some of these head winds may be stronger and more persistent than we thought. >> reporter: two of those economic headwinds-- gas prices and the japanese earthquake's impact on supply chains-- are already easing. but the fed chairman says other economic drags may be felt into next year. which is why bernanke says the fed will take some time to see whether their forecast of better growth ahead holds up. after listening to the news conference, societe generale's stephen gallager says bernanke is not in a hurry to make changes. >> we like action, we're impatient, but he's telling us it's an extended period of time- - about a year in our minds-- before we see any significant reactions or new actions taken on the part of the federal reserve. but that means historically low interest rates-- near zero-- for the funds they offer for a long period of time, and that's quite an exceptional period of time. >> reporter: bernanke also tackled one of the key debates in washington-- how fast to cut
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the budget deficit. many republicans have argued immediate spending cuts will create jobs, but bernanke urged them to make changes over the long run. >> i don't think that sharp immediate cuts in the deficit would create more jobs. i think in the very short run that we are seeing already a certain amount of fiscal drag coming from state and local governments as well as the withdrawal of previous federal stimulus, so i think in the very short run, the fiscal tightening is at best neutral, and probably somewhat negative for job creation. >> reporter: the high unemployment rate is very much on the fed chairman's mind. and if the fed's revised forecast is right, bernanke says we should see a pick up in payrolls soon. darren gersh, "nightly business report," washington. >> susie: joining us now for more analysis, bruce kasman,
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chief economist at j.p. morgan chase. >> tom: right, susie. >> susie: also just over the last couple months we keep hearing from the fed chairman that the problems in the economy are trancer to, they are temporary. how long is temporary? >> i think if he's right and if those forces that are temporary will give us a lift, they'll come pretty soon in the next three months. i think it's important that the chairman did basically say he wasn't confident that it was trans-itory. there's some sense that it will pick up, but not the strength they were looking for a few months ago. >> susie: how much more pro-active can the feds be? what are its options to pick up the economy? >> i think unless we get something pretty dramatic happen, its options are very limited. part of that is because inflation has picked up, we're not in the same position we were last year where inflation was well below the fed's target, but also i think the fed has used purchases of
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assets, it's been very exceptionally accommodating here and that's created some political backlash which makes it difficult for them to use too manys for fine tuning. we need to see some really bad things happen before the fed can come in and do something more. >> susie: we know the fed has pumped a lot of money into the financial system, that bond buying program, qe 1, 2, there's talk maybe of a qe 3. have these worked or was it a waste of money? >> no, i think they've worked, but i think they've been limited. i think they've worked in helping direct expectations, keeching the deflationary psychology that was starting to take hold last year at bay. but they've been limited and i think we should expect those things to be limited in a world in which there is still tight credit and there is still very depressed psychology on the part of consumers. >> susie: bruce, we showed on the screen a moment ago the fed's forecast, revised forecast for this year, 2011. but they also have revised
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their forecast for next year. they are expecting the economy to grow faster, a growth of 3.7% in the economy, and that the unemployment rate to get as low as 7.8%. what is he basing on, where is that growth going to come from? and do you buy that? >> well, i think he's backing on some of the tranceitory weakness fading, banking on the strength of the corporate sector and the global economy outside our borders doing very well. i think there's a good case to say those things will be in place, but we are about to face what i think will be a pretty big fiscal tightening, and so our forecast does see a little lift, but not quite as much as what the fed is looking for. >> susie: as for this situation going on the greece, ben bernanke did talk about that and said that there is a significant risk of the greek problems spreading to other countries in europe. do you think that the fed has
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a contingent sit plan that if we do get that so-called contagion that the fed will have a response to deal with it? especially if the whole world financial system gets impacted by that. >> well, i think if we started to see serious contagion, the fed would act, it would act in a number of ways in providing liquidity, perhaps purchasing some more assets. but quite frankly, if europe really does blow up, it's going to be in the hands of european authorities to try to contain the damage. and i think if we do have a real breakout of the crisis in greece, it's going to be hard to contain. >> susie: just sounds, just to wrap it up, sounds like the fed really is on hold, that it's in limbo. is that a correct read? >> i think the fed is on hold for a very long time on rates. we think probably about 18 months before we expect to see short-term interest rates go up in the u.s.. >> susie: all right, thanks a lot bruce, great talking with you. >> thank you. >> susie: we've been speaking with bruce kasman, chief economist at j. p. morgan.
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>> tom: here are the stories in tonight's n.b.r. newswheel: stocks headed lower on the fed's cautious outlook for the economy. the dow fell 80 points, the nasdaq was off 18 and the s&p 500 fell eight points. trading volume rose slightly on the big board to 854 million shares. it fell on the nasdaq to 1.6 billion shares. new scrutiny for the $2 trillion hedge fund industry is coming. the securities and exchange commission today adopted rules requiring advisers to funds and private equity firms with more than $150 million under management to register with the agency by april of next year. and in an effort to stay afloat, the u.s. postal service is suspending contributions to its health care retirement fund. the move will free up about $800 million and buy the agency time until congress can act on cost- cutting measures like dropping saturday delivery. still ahead, with the fed on hold tonight's "street criqitue"
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looks at whether investors should be too. >> susie: everyone knows the real estate market is in bad shape, but it's looking less bad in some ways. the number of distressed homes likely to hit the market is coming down. today, real estate research firm core logic reported the so- called shadow inventory is down from a year ago. erika miller takes a look at what this development says about the outlook for the residential housing market. >> reporter: we all know shadows can be scary, including the ones lurking in the real estate market. shadow inventory is the term given to properties not currently for sale, but likely to come on the market because they are in late-stage default or worse. real estate data firm corelogic pegs shadow inventory at 1.7 million units. that's down from 1.9 million a year ago. both represent a five-month supply. corelogic's chief economist, mark fleming, is focusing on the positives. >> it's actually getting better. we've gone down 200,000 from a
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year ago. it's almost a fifth below the peak of two million in january 2010, so it's getting better. so, slowly, we are working through that excess inventory of distressed assets. >> reporter: by definition, shadow inventory is hard to pinpoint. realtytrac estimates the number could be as high as 5.7 million units, if homes at an earlier stage of trouble are included. jonathan miller-- head of appraisal firm miller samuel-- thinks foreclosures will start to pick up again as banks resolve their robo-signing issues. that could lead to lower home sales and prices. >> if you look at it in a national context, we are likely going to see more declines over the next year or two, but probably more modest than what we came from. we're not anticipating some sort of sharp correction. >> reporter: the long timeframe to the bottom underscores the scale of the u.s. housing recession. and, unfortunately when the recovery does come, many think
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it will be painfully slow. >> this is going to take a number of years-- anywhere from five to 10 years-- to ultimately resolve and bring back a completely healthy and vibrant housing market. and so i look at it right now as the level of the flood waters have peaked. it's just a matter of working the flood waters away. >> reporter: the one factor above all others that will determine the pace of the housing recovery is jobs. unless there's a significant drop in the nation's 9% unemployment rate, many potential homebuyers will stay on the sidelines. erika miller, "nightly business report," new york.
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>> susie: you know tom as bruce kasman was saying and as darren reported, it looks like the fed is just sort of running in place. and that's why we didn't see much excitement in the markets today. a lot of uncertainty and confusion about what though do next. >> tom: yes, and when there's confusion of course a lot of investors say you know what maybe now is not the time to put money to work. and we saw that late in the day today here, so let's go ahead and roll with tonight's market focus. >> tom: we saw a couple of failed rallies in stocks today as buyers couldn't muster enough strength on the heels of the federal reserve decision and chairman bernanke's public comments.
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so we'll begin with a full day of trading. after starting out weak, the s&p 500 rallied into positive territory by mid-morning, and hovered around the unchanged mark until around 2:30 eastern time. as federal reserve chairman bernanke held a news conference, we really saw sellers take over. giving no hint to a specific plan to goose the economy as more, the market fell, sliding to its low of the day at the close. off by 0.5%. let's pull out to a bigger picture. this is the s&p 500 since november 2010, when the fed first announced its bond-buying strategy known as quantitative easing two. that strategy winds down at the end of this month. since it was announced, the index is 8%. one bright spot today was fed- ex. it turned in these earnings before the opening bell this morning. it's c.e.o. called the current weak economy temporary. the company was confident enough that its fiscal 2012 outlook
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came in better than expected. shares of fed-ex battled the weak market all dayending with a 2.6% gain. volume more than doubled. shares fell hard earlier this month, but they continue in this trading range between 85 and 95. they have been in that range since november. transportation analyst at dahlman rose, jason seidl, sees the fed-ex optimism spreading. >> there's a very good possibility that as japan rebuilds, we're going to see a surge in demand, maybe in the back half of this year and the beginning of 2012. >> tom: here's the exchange- traded fund following the dow transportation index. here it is. while down a fraction today, it remains in an up-trend, up 24% over the past year.
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the technology sector was the biggest drag on the broad market, led by software firm adobe systems, this drop of more than 6%. volume was more than five times average as shares made a new low for this year. it reported strong earnings last night, but its outlook was disappointing. the firm does say it is ramping up for hiring next year. speaking of the reaction to tech earnings, contract manufacturer jabil circuit was the best tech today, adding more than 3%. bit of a nice rally here. earnings and revenue were strong, and the company announced a new stock buyback plan. that brought buyers in. material stocks performed the best today, helped by steel makers. u.s. steel and a.k.k. steel each saw small gains. an industry source reported american steel product has grown from a year ago, and american steel mills are running at their highest capacity of the year. while we're talking about materials, check out gold. here's the past 90 sessions. with today's $7 rally, gold is back at its early june prices and less than $25 away from its
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record high set in early may. dutch conglomerate philips warned it sees a significant drop in the operating profit of its lighting and lifestyles division. weak european consumer demand gets the blame. shares falling more than 10%. other lighting conglomerates-- siemens and g.e.-- saw some selling, but to a lesser degree. and that's tonight's "market focus." >> tom: so the federal reserve stays the course, keeping interest rates at historical lows and winding up its bond
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buying program. now it's wait and see. tonight's "street critique" guest is hilary kramer, editor of gamechangerstocks.com. so hillary, what should investors do as the fed plays it patient right now? >> well, investors need to understand that the reason wall street came off today after the fed spoke is that the federal reserve told us that growth is slowing. now, if growth is slowing, that means that we're going to still see unemployment and ben bernanke told us that. given that you want to stay away from retail, consumer discretionary stocks, but it doesn't mean that you should stay away from the market. we're at historical p. e. load, price to earning multiples, the stock market is relatively cheap right now, trading at 14 times earnings. so, tom, the key is to go into health care, areas of technology that are sweet spots that are growing, and even energy. >> tom: and energy takes us right to that place and it's global energy that you're
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looking at with your new pick tonight, m. d. r., mcdermott international. has had a nice rally, has come off out most recent highs, however, even as oil prices have tried to stablize, this is an off shore oil and nat gas drilling project management firm. what makes you like mdr? >> i believe that we still have shortages of oil, even though we've had these great discoveries and finds including off the coast of braz skpil west africa, mcdermott because they build, construct and can manage these off shore operations, and they're very complex. they have the market, they're the best technically doing that. and 87% of their revenues come from middle east and from the asia pacific region. a lot of those are opec countries. only saudi arabia has any excess capacity and they have, it's very hard to refine their oil. mcdermott is going to get a lot of contracts, they already have a huge backlog from the opec countries. >> tom: playing energy on the services side, an interesting
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idea. let's get to some e-mails that we've got here, including lots from the city. we're going to take a look at this sharp price since december 29 when you first chose it. split adjusted it was in the $47 range, now it's below 40. do you still like it, have you sold? >> no, i'm still holding my citigroup. the long-term stories, just like housing, will take a lot longer than we thought. but citigroup has faced their problems head on. i still like citigroup, and it will reward us, it may take a few years. >> tom: another one, dwod man sax, -- goldman sax. april 2010 was when you first mentioned goldman. share prices are a bit lower, but it's been volatile as it wrestled with regulatory issues. >> over the long run it is the best in class of all the investment banks, owen, stay with goldman sachs, i am.
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i know it's a painful ride. >> tom: do you own everything we mentioned tonight? >> yes, i do. >> tom: you can email us, streetcritique@nbr.com. or you can send us a note via twitter at my feed, @hudsonnbr, or nbr's feed. and facebook too. we'll feature some of your questions next wednesday. our guest this evening on "street critique" is hilary kramer with gamechangerstocks.com. >> susie: here's what we're watching for tomorrow: new home sales for may are released along with weekly jobless claims. on the earnings calendars, quarterly results from con agra foods, h&r block, lennar, oracle and rite aid. also tomorrow, when it comes to start-up companies, how experiencing failure may be the key to success. a british teenager has been charged with launching a series of cyber attacks overseas. 19-year-old ryan cleary is suspected of bringing down the u.k.'s equivalent of the f.b.i.
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authorities say he also has ties with the hackers that targeted sony, the c.i.a. website and the u.s. senate computer system. so far, he only faces charges in the u.k. it's not yet known if the f.b.i. plans to file charges in the u.s. >> tom: asia is home to more millionaires than europe, and the region may soon have more millionaires than north america. to be considered a millionaire, you have to have investible assets of at least $1 million. 3.3 million people fit that description in asia, second only to those in north america, according to a new report by merrill lynch. if you put all the assets held by millionaires around the world together, they would equal just under $43 trillion.
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>> susie: in the "money file" tonight, why you can stop worrying about lattes. here's ramit sethi, author of "i will teach you to be rich." >> america is obsessed with lattes. everywhere we turn, we hear a personal-finance "expert" nagging us about cutting back on our morning habit. yet what they won't tell you is that cutting back on lattes actually does very little to improve your financial situation. here's why. first, cutting back on lattes doesn't actually save that much money. if you were to stop buying all lattes, you'd save about $1,000
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a year-- hardly a huge savings. and don't forget, the costs of making your coffee at home will reduce that amount. second, you'd want to commit suicide every morning. who wants to live like that? and third, this advice misses the psychological aspect of money. we are what's called "cognitive misers," meaning we have limited cognition and willpower. willpower is like a muscle-- each time we cut back on something, we're less able to exercise it later that day. so would you rather cut back on $4 lattes, or would you rather focus on the big wins in life? big wins like negotiating your salary, which-- even in this economy-- could net you tens of thousands over the lifetime of your career. or big wins like earning money on the side, which can earn you thousands every month for just a few hours of work. or big wins like improving your credit, which could save you $100,000 on buying a house. how many lattes is that worth? i'm ramit sethi.
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>> tom: finally, it's officially summer. that means it's the season of county fairs. the biggest hit at this year's san diego county fair? deep-fried kool aid. how do they do it? kool aid powder is mixed into a batter and fried, then rolled in what else? kool aid. why? probably because "chicken charlie" can. he's fried more than 500 pounds of kool aid since the fair started ten days ago. susie, if fried kool aid doesn't tempt your taste buds, chicken charlie's stand has other fried goodies, including twinkies, avocados and frog legs. >> susie: you know, tom, i love going to these summer country fairs, but i'm thinking more corn on the cob and cotton candy. >> tom: gotta be on a stick though. that is "nightly business report" for this wednesday night. i'm tom hudson. good night everyone and good night to you too, susie. good night tom. i'm susie gharib. good night everyone.
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we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >> more information about investing is available in
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